Ally hopes to end mortgage woes with ResCap bankruptcy

NEW YORK | Mon May 14, 2012 – Ally Financial Inc.’s mortgage unit on Monday filed for bankruptcy and the auto lender said it will sell some international operations to help set it on a path to repaying $12 billion in bailout money.

Ally’s mortgage unit, called Residential Capital, or ResCap, filed for bankruptcy protection in federal court in Manhattan under a plan that has the support of some of its creditors, although it was still expected to be a drawn-out and litigious process.

At the same time, Nationstar Mortgage Holdings, which is majority owned by Fortress Investment Group, struck a deal to buy substantially all the mortgage servicing and related assets from ResCap for about $2.4 billion, including debt. The deal will make Nationstar the opening bidder in an auction that will be held under bankruptcy court rules.

“The single-most important thing we can do for the U.S. taxpayer is to not put billions of dollars into this business on a going-forward basis,” Ally CEO Michael Carpenter said in an interview.

Ally, the former lending arm of General Motors Co., has been besieged in the past few years by losses at ResCap, which was once a major subprime lender and profit engine. The company has considered bankruptcy and other ways to shed ResCap since at least 2009, but has never pulled the trigger.

A bankruptcy of ResCap now will help Ally, formerly known as GMAC, focus on its main auto lending business and put together a plan to pay back U.S. taxpayers.

The U.S. Treasury Department injected $17 billion into the lender through multiple bailouts during the financial crisis and now owns nearly 74 percent of the company. Ally still owes the government about $12 billion, counting dividend payments by the lender and sale of some securities by the Treasury.

The bankruptcy filing comes as pressure increases on Ally to repay that money and problems at ResCap become increasingly unmanageable. The Obama administration is trying to show recoveries from crisis-era bailouts before the presidential election in November, and government officials are loath to let Ally become a black mark on the auto industry restructuring.

In filing for bankruptcy, ResCap would also become a rare example of a subsidiary of a bank holding company to do so. As a result, other banks with intractable mortgage problems, such as Bank of America Corp., will be closely watching how the company deals with regulators and creditors and manages the bankruptcy process.

ResCap and its advisers believe it may be one of the first times that a financial services company with retail operations such as a bank has filed for bankruptcy and been able to continue operating.

Ally nears bankruptcy deal with Residential Capital creditors: source

DETROIT, Tue May 8, 2012 – Ally Financial and creditors of the lender’s Residential Capital unit are in general agreement on a plan to put the mortgage subsidiary into bankruptcy in a deal that could speed up and ease the process, a person familiar with the matter said.

Details of the agreement are still being worked out, the source said on Tuesday. A deal with creditors would help the lender file for a pre-packaged Chapter 11 bankruptcy that expedites a reorganization.

ResCap, as the unit is called, has been considering filing for bankruptcy by May 14 when it must repay a portion of its debt. A filing could come as soon as Sunday.

Ally spokeswoman Gina Proia declined to comment.

Ally, formerly known as GMAC and which was bailed out by the U.S. government during the financial crisis, is 74 percent owned by the government and owes taxpayers about $12 billion.

ResCap has been pummeled over the last few years by mortgage problems and has been at the heart of Ally’s woes. A ResCap bankruptcy is seen as the best way for Ally, whose core business is auto loans, to move ahead.

Ally has been negotiating with a group of creditors who hold more than 45 percent of junior secured notes at ResCap, sources have said previously.

Billionaire Warren Buffett’s Berkshire Hathaway holds another 45 percent of the junior secured notes and also holds a significant portion of ResCap’s unsecured notes that mature in May, sources have said previously.